Shamed by the unions

It should be a source of shame that the challenge of a universal pension aggregation tool has been picked up by the TUC rather than by the industry, says Ian McKenna, director of the Financial Technology Research Centre

It is a great shame that government’s plans to deliver a generic pension aggregation tool for citizens have, at least for the time being, bitten the dust. I always felt this was likely sooner or later as the project objectives looked to me over-ambitious, certainly if delivered in a single phase.

In the wake of the demise of the government project the TUC has delivered its online “pension doctor” service to help individuals gather information about their pensions situation, and help suggest future action they can take to improve their retirement income. (www.pensions champions.org)

While it is good news that someone is addressing this important issue, am I the only person to be embarrassed by the fact that it is the unions rather than the pensions industry that has come up with this solution?

I am in no doubt that as an industry we have the ability to build a powerful pension forecasting tool that could be accessed by all consumers.

However, for the time being at least, the industry seems to lack the collective will to deliver this. To me, delivering tools that enable employees to get a realistic forecast of their income in retirement from all sources ought to be a core part of every group pension proposition.

Until a collective will to deliver such a solution emerges, advisers will need to source such capabilities from software providers. Last month I spent some time looking at one of the more advanced pension forecasting tools in the market. This comes as part of a much wider suite of software from Aegon Benefit Solutions.

The company delivers a suite of group pensions technology to assist employers. In this column I want to focus on just one area of the service. Over the years most clients have operated more than one pension scheme, not least as a result of growth by acquisition. Consequently it is important for members to be provided with aggregated benefit statements.

In addition to their integration with Scottish Equitable, the service can be used to operate pension products from AXA, Standard Life and Friends Provident. I understand they are currently building similar services with Scottish Widows and Legal & General. The system can use the industry standard Contract Enquiry messages wherever they are available to update scheme values.

In single projection, members can see all the benefits they have in all the schemes the employer runs taking into account scheme rules. In addition information can be manually entered in respect of previous DB & DC schemes. A price feed from Financial Express can be used to refresh fund values. Any other arrangements, such as unlisted funds or anything else a member wants to take into account in their retirement planning (e.g. property abroad, wine collection), can also be added to the retirement provision.

All current values are aggregated into a combined benefit calculator. This takes total value of pensions, aggregates and then applies standard annuity rates to identify income in retirement. The default approach is SMPI compliant however, where appropriate for occupational DC different assumptions may be applied by trustees or HR administrator. The system can also support different retirement dates for different schemes and can produce a staggered statement, showing retirement income building over years – one level of income at 60 building to a higher level at 62 and increasing further at 65.

There are many more things that could be done – for example aggregating value of individual contracts that each member might have. However, there are practical barriers that as an industry we need to address before this is possible. Presently the vast majority of insurers have no ability to show servicing or information rights being held by multiple advisers or data aggregators. I believe it is time for the industry to stop putting this in the “too difficult” box and recognise that it is an essential requirement for servicing customers.

Aegon are meeting an important adviser and consumer need in delivering this tool which supports a process of education, aggregation and advice.

In addition all users of the service have access to My Money Pal, a financial education portal that includes articles, education and guidance on a wide range of financial subjects including savings, retirement, mortgages and general insurance.

Until such time as the industry recognises that we are being put to shame by the TUC by failing to pick up the gauntlet of a universal pension aggregation tool, this service has a lot.